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US construction to help copper in 2013

Keywords: Tags  Copper, Freeport-McMoRan Copper & Gold, Richard Adkerson, Christopher Ecclestone, Hallgarten, Morgan Stanley, John Tumazos, Very Independant Research Citigroup


NEW YORK — Analysts and producers are reasonably optimistic about copper demand this year as a number of end-markets, notably U.S. construction, rebound.

Even a modest recovery in construction will undoubtedly boost copper markets, analysts and producer sources said.

"I’m expecting a construction recovery in 2013. Not a rip-roaring one by any means, but a moderate, bubbling recovery," Christopher Ecclestone, mining strategist at Hallgarten & Co. LLC, told AMM. "It can’t stay in the dumpster forever. It’s been five years."

A second analyst agreed. "Construction spending in the U.S. improved ... in 2012 after five years of consecutive declines. It’s just a matter of how much it will increase, but the link to construction spending (will boost copper)," he said.

Citigroup Inc. estimated in a Jan. 16 research report that spending on U.S. construction projects in the first 11 months of 2012 increased 9.2 percent from the $778 billion spent in 2011, and expects that trend will continue this year.

Automotive and power companies also are making investments this year, more positive indicators that copper should have a decent 2013, Freeport-McMoRan Copper & Gold Inc. president and chief executive officer Richard Adkerson said during an earnings conference call.

"We’re seeing some degrees of improvements. Construction in the U.S. is growing. Automotive has been strong and the outlook is for continued strength. There are some ... power companies investing in the grid. There’s a short-term effect from the damage caused by Hurricane Sandy," Adkerson said. "Overall in the U.S., our customers are talking about an environment of moderate growth."

Even modest growth will help copper markets as there is very little inventory in the supply chain, sources said.

"It won’t take a lot of recovery to tighten the market up. Everyone’s destocked in the West," Ecclestone said.

Adkerson agreed that inventories remain relatively low.

Global copper inventories in London Metal Exchange-listed warehouses total nearly 345,000 tonnes.

Most agree that copper supply is reasonably tight. Morgan Stanley analysts expect "upside demand surprises amid continued supply constraints."

"I think copper is the tightest of the metals," said John Tumazos of Very Independent Research LLC. "But I don’t think it’s a complete statement." While some producers are delaying projects, others, such as Rio Tinto Plc and Freeport, are expanding copper production, which could put excess copper on the marketplace, he said.

Freeport expects to increase daily copper ore output at its Deep Ore Zone Grasberg Mine in Indonesia to 80,000 tonnes per day by the end of this year, which will help bring 2013 copper sales to 1.1 billion pounds ( amm.com, Jan. 23).

"Markets are fairly tight currently, but could swing into a surplus as additional capacity comes online. Some of that is from Freeport themselves," the second analyst said. The refined copper market balance in the first 10 months of 2012 indicated a production deficit of 557,000 tonnes, according to the latest data from the International Copper Study Group, compared with a deficit of 146,000 tonnes in the same period in 2011.

Copper consumers have recently voiced concern over the proposed launch of JPMorgan Chase & Co.’s physically backed copper exchange-traded fund (ETF) and its potential to squeeze supply ( amm.com, Jan. 11).

Analysts anticipate copper prices will stay steady for the moment.

Hallgarten is forecasting average 2013 copper prices between $3.50 and $3.80 per pound ($7,716 to $8,378 per tonne); Citigroup has forecast an average of $3.67 per pound ($8,091 per tonne); and Morgan Stanley anticipates a $3.88-per-pound ($8,554-per-tonne) average.

"Copper is not currently at its all-time highs that we experienced in 2011, but considering the global economic situation there’s no way to say anything other than the current price is very strong," Adkerson said.

LME three-month copper closed Thursday’s official session at $8,076 per tonne ($3.66 per pound).


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